Can Cyprus cash-in on gas treasure chest locked beneath the sea?

By Oliver Joy, CNN

updated 11:10 AM EST, Tue December 17, 2013

U.S.-based Noble Energy is operating in Cyprus' Aphrodite gas field and has a number of projects in the East Mediterranean.

A Cypriot fills a car with gasoline in Nicosia at a petrol station owned by Lukoil, Russia's second largest oil company. Cyprus' gas find could prove valuable for the European Union seeking to reduce reliance on Russian gas.

A demonstrator shouts through a megaphone during a protest against austerity measures and the Troika on March 23 2013, in Nicosia, Cyprus. (Photo by Getty Images/Milos Bicanski)

Cypriot college students light a flare outside the presidential palace during a protest on March 26 2013. (AFP photo/Patrick Baz)

Cypriot residents queued at Laiki Bank -- the country's second largest bank -- to withdraw their savings during Cyprus' financial crisis. The bank ultimately collapsed in March 2013.

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Cyprus' offshore gas hope

Cyprus' offshore gas hope

Cyprus' offshore gas hope

Cyprus' offshore gas hope

Cyprus' offshore gas hope

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STORY HIGHLIGHTS

Cypriot gas reserves in the offshore Aphrodite Field are estimated to be between 3.6 and 6 trillion cubic feet.

Cyprus' energy minister said the just a fraction of the gas reserves could serve the country for up to 25 years.

The energy minister believes it will take until the end of the decade before Cyprus sees any direct benefit from the gas.

Editor's note: CNN's On the Road series brings you a greater insight into the customs and culture of Cyprus. CNN.com explores the places, the people and the passions unique to this eastern Mediterranean island.

Named after the goddess of love, the "Lady of Cyprus" gas field could contain up to six trillion feet of cubic gas.

Just 0.5 trillion cubic feet of gas could provide Cypriots with energy for 25 years, leaving ample reserves for export to Asia and Europe, Cyprus' Energy Minister Giorgos Lakkotryis told CNN in an interview.

But the minister was quick to stress that offshore gas operations would not solve Cyprus' economic anguish in the short-term.

"We do not depend on the offshore operations and the gas to come out of this recession," said Lakkotryis. "In the mid- and short-term we're looking at side effect benefits."

Lakkotryis believes it will take until 2020 before Cyprus sees any direct benefit from the gas.

"A lot needs to be done. The cheap availability of energy is also going to allow us to create other industries such as petrochemicals and heavy manufacturing," he said

The minister added that multinational oil and gas companies as well as infrastructure projects aimed at converting gas to liquid would create jobs, spur growth and boost exports.

A long term project

Oil and gas giants Total, ENI and Texas-based Noble Energy have all secured contracts to operate in the Aphrodite field with extensive exploration and drilling set to begin in October 2014, lasting for 12 months, according to the energy ministry.

However, the 150-kilometer distance between the gas field and Cyprus' shores could delay operations.

"Because of the distance offshore, the field would require a pipeline to reach the mainland of Cyprus at which point it could be used for domestic economy or LNG (Liquefied Natural Gas) export," said Keith Elliott, senior vice president of Eastern Mediterranean Region of Noble Energy.

The government says it is planning to finalize investment and build an onshore LNG plant while using Cyprus' proximity to the Suez Canal and its ties with Europe to exploit export opportunities in Asia and Europe respectively.

But Amit Mor, CEO of Eco Energy Financial and Strategic Consulting and former World Bank consultant, said that Cyprus "cannot economically justify even one LNG plant" based on current reserves.

He added that Cyprus could possibly build a plant if the country reached an agreement to liquefy excess Israeli gas from the country's Tamar and Leviathan fields, which are significantly bigger than Cyprus' Aphrodite field.

"Cyprus itself is a small market that does not justify the financing efforts," Mor said. "One LNG plant incurs $6 billion in construction costs. The development cost of a major offshore gas field could reach $4 billion (while) exporting natural gas via ships in liquid form is a very expensive and time consuming process."

Subsequently, the East Mediterranean island became the fourth country to receive a national bailout from the eurozone and the International Monetary Fund.

Charles Movit, senior economist at U.S.-based consultancy IHS, said the benefits of gas reserves could help Cyprus service its debt: "In the medium term, license fees for exploration and development could be helpful in closing the financing gap. Down the road, royalties and job creation could be a major plus."

With gas sources in the North Sea expected to decline over the next decade and few countries willing to invest in nuclear energy in the wake of the Fukushima disaster in Japan, Cyprus could also provide the answer to Europe's energy demands as it seeks to decrease its dependency on Russian gas.

"A pipeline between Israel and Cyprus to Europe via Crete and Greece would cost $6 billion to $8 billion... I think it is very important to conduct a feasibility study to see if this is economically viable," said Mor.

In the meantime, Cypriots struggling under the weight of a recession are hoping the government's predictions are correct and that gas could ultimately provide the basis for ending the economic crisis.

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